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Home Loans Today – September Report 2011

Current Interest Rates as at 5 September 2011

Variable 5.40%
6 Month Fixed 5.60%
1 Year Fixed 5.55%
2 Year Fixed 6.20%
3 Year Fixed 6.70%
5 Year Fixed 7.40%

Interest Rate Outlook
Predicting Interest rates is as difficult as a game of charades with children right now. No sooner does there appear to be the movements of recovery in NZ & demand for fixed interest rates and the next thing the global debt crisis worsens and we all start second guessing each other.

Clearly our friends in the US and Europe are along way out of the woods in relation to their debt and funding troubles & this affects us, as due to our size we fund a good portion of our residential mortgage book on the international money market.

As Europe & the US scramble to keep their credit rating and head above water the price of fixed term money remains low and our earlier concern that fixed interest rates could spike has eased.

Locally, we are still showing signs of recovery with housing consents starting to move upward and the level of mortgage approvals up some 20% on 2010 indicating activity is definitely on the increase. Furthermore as soon as the government can coordinate the Reinsurers overseas to provide cover on new houses built in Christchurch going forward the market will really kick as currently this is stifling the rebuild and recovery in the region.

With so many variables outside of our control it does not give anyone much confidence to make bold predictions and while the fixed rate pressure has eased, we still feel the above international debt crisis has only delayed the inevitable rate increases. We do not believe we will see rates increase in September now as originally thought and this could be pushed out to as far as the end of the year, providing more breathing space around these sub 6% interest rates.

Put simply if you are of conservative nature, the current sub 6% rates for 1 year or low 6% for 2 years still look appealing, if you are more aggressive and are prepared to keep an eye on the market the current variable rates are still the cheapest option. The only option we currently have any confidence in is to have a dollar each way by fixing some and having some on floating.

What’s Hot
As the above outlines the finance market sure is a fickle place and majority of our clients really are confused as to what the right thing to do is in relation to interest rates right now. The single biggest demand we currently have is for advice on interest rate strategy – see above for ours.